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To-ma-to, To-mah-to: The Difference Between MLA & SCRA

Breaking Down the 2017 NCUA’s Supervisory Priorities –The Difference Between MLA and SCRA

At the end of my blog a couple weeks ago, I promised to continue with the themes in our whitepaper, Think You Know Audits?, where we talked about the NCUA’s 2017 Supervisory Priorities.  With summer here, October is just around the corner, and that means more changes for the Military Lending Act. Couple that with the changes made last October, and life is getting interesting (sorry, some compliance sarcasm there). Add on SCRA and we’ve got a cornucopia of regulations that might need some ‘splaining (think Lucy loves Ricky…).

The information below may seem redundant, but the NCUA is gearing up to focus on MLA in their exams this year, so brush up on your regulatory knowledge with a quick, and brief, overview:

What is the Military Lending Act (MLA)?

The MLA limits the Military Annual Percentage Rate (MAPR) to 36% or less. The MAPR includes interest and other fees and charges even if such fees or charges are not considered finance charges under Regulation Z. The MAPR also includes as applicable:

  • Credit insurance premiums or fees;
  • Debt cancellation contract fees;
  • Debt suspension agreement fees;
  • Fees associated with ancillary products; and
  • Application and/or participation fees (with the exception of one application fee during a 12 month rolling period, charged by a Federal credit Union or Federally Insured state-chartered credit union on a loan made pursuant to NCUA’s PAL program.)

What is the Servicemember Civil Relief Act (SCRA)?

Under the SCRA, the interest on pre-service debt (i.e., incurred prior to active duty), including fees and other charges, is capped at 6%. This includes debt owed jointly with a service member’s spouse. A credit union must forgive any interest and fees in excess of 6%. To receive the reduced interest rate, a service member must provide the credit union with a written notice and a copy of the military orders no later than 180 days after the date of the service member’s termination or release from military service. Once the credit union receives this notice, it must reduce the interest rate on any pre-service debt as of the date on which the service member was called to military service. The 6% rate limit does not apply to new advances under an existing credit card account or HELOC plan. This is true even if the open-end plan was established by the service member prior to active duty.

What is the difference?

We’ve helped many credit unions understand the differences, and it is important that your employees understand those differences, as they represent your credit union at the front line, where our military men and women turn to when seeking relief or support while they serve our country.

The SCRA covers pre-service debt (taken out before our troops begin active duty), and the MLA covers loans that are obtained during the time a service member is on active duty.

The SCRA requires the military member or his/her commanding officer to provide copies of military orders, and the MLA requires the credit union to verify military status.

The SCRA limits the pre-service debt’s interest rate to 6%, including fees and other charges, and the MLA limits the Military Annual Percentage Rate (MAPR) to 36% or less.

The SCRA covers open-end loans, such as credit cards and HELOCs, and closed-end loans including mortgage loans, auto loans, and signature loans.  The MLA applies to most open-end and closed-end loans (subject to Reg Z) and the refinance of certain closed-end loans, such as an automobile loan.  However, there are exceptions for MLA:

  • Residential mortgage loans including a transaction to finance the purchase or initial construction of the dwelling;
  • A mortgage loan refinance transaction;
  • A home equity loan;
  • A HELOC;
  • A loan to finance the purchase of a motor vehicle when the loan is secured by the vehicle being purchased;
  • A loan to finance the purchase of personal property when the loan is secured by the property being purchased;
  • Any loan that is not subject to Regulation Z; and
  • Any loan where the borrower is not a “covered borrower.”

What’s the NCUA got to do with it?

New requirements for the MLA went into effect last October, and credit cards get into the act this year. The NCUA intends to focus on those changes and ensure credit unions got it right, and are taking care of our military service members. Hopefully, you’ve all put the right systems and controls in place to ensure your credit union complies and can support either regulation appropriately, whether it be SCRA or MLA.

How can PolicyWorks help?

PolicyWorks can perform an MLA and SCRA audit for your credit union, so you can be confident your systems and controls are working. We’ve heard from our credit unions and nearly 64% of credit unions that responded to our survey said they do not have enough compliance resources on staff to perform their compliance audits in-house. Let us help you augment your resources. Click here for more info.

PolicyWorks Audit and Review Services

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